Revive California factories, panelists say

Golden State innovations built somewhere else, businesses contend

This story was clarified to point out that Coda considered placing its battery plant in California.

BEVERLY HILLS, Calif. (MarketWatch) — If California could only reverse the slide in its manufacturing base that has dogged the Golden State’s economy for the last two decades, it could revive the region that is suffering from a jobless rate of more than 12% and once again make it the envy of other states — and nations.

That was the finding Tuesday from panelists appearing at the Milken Institute’s “State of the State” conference in Beverly Hills. Speaker after speaker during the one-day gathering called upon state lawmakers and the incoming governor to address this situation after the Nov. 2 election.

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Onerous environmental regulations and byzantine permitting processes have left business owners exasperated to the point where they are simply choosing to go elsewhere to build the products they designed and developed in California — either to other states or other countries.

“We would have much preferred to be in California,” said Kevin Czinger, chief executive of Coda Automotive, an electric-car and battery maker based in the Los Angeles suburb of Santa Monica. Czinger was referring to a decision made by his company earlier this year to to place its battery manufacturing plant in Ohio.

It wasn’t just the tax incentives and perks the other regions were offering, Czinger told the audience at one of the conference’s panels. It simply no longer makes business sense to design products in California, and then go ahead and build them there.

“At the margin, it was not possible to make an economically rational decision and be in California,” he said, calling for the state to relink manufacturing with innovation. “That’s the nail that needs to be hit many, many, many times on the head.”

At the conference, another panel of chief executives lamented the number of regulatory issues that bedevil businesses in the state, not the least of which is the California Environmental Quality Act.

The 1970 measure often can hold up a number of projects. Michael Milken, the institute’s chairman, noted that a school he tried to build through his Knowledge Universe in Singapore took a fraction of the time it would have taken in California.

Art Coppola, chairman and chief executive of Santa Monica-based mall developer Macerich Co.
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, said CEQA can be used to undermine numerous projects in the state.

“It sounds good, but it is horrible,” Coppola said. “Great projects can get delayed for years for no good reason.”

California’s manufacturing base took a major hit when the former Soviet Union splintered in late 1991, marking the end of the Cold War. At the time Los Angeles was the oracle of the aerospace industry, but drastic cuts in defense spending wrought by the Cold War’s end forced many companies to pare back.

At the same time, California manufacturers — fed up with an increasingly difficult regulatory environment — made a mass exodus for friendlier states. A number of major aerospace firms were among them, including operations held by Lockheed Martin Corp.
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That slide continued through this year, when Northrop Grumman Corp.
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decided to relocate its headquarters from Los Angeles to Washington, D.C.

“California used to be the center of the aerospace industry. Today we no longer have an aerospace company headquartered here,” said Kellie Johnson, chief executive of Ace Clearwater Enterprises, a maker of aerospace parts based in Torrance, Calif.

Businesses are finding fewer reasons to relocate here, and one of them is lack of personnel. Perry Wong, director of the Milken Institute’s regional economics group, said California leads the nation in patents, with three universities in the state comprising 14% of all the U.S. patents granted.

But the state ranks 18th in the number of doctorate degrees granted per 100,000 people and 16th in percentage of residents with baccalaureate degrees.

“Do we have all of our workforce that we need to pursue [innovation]?” Wong asked. “We are slipping and slipping in human capital.”

The panelists said this year’s elections could be critical in helping to turn around California’s education system, as well as its apparently business environment. Trouble is, it seems that neither candidate for governor in this year’s election seems to be focusing on that issue.

Democrat Jerry Brown and Republican Meg Whitman have talked about Brown staffers’ use of the word “whore” in describing Whitman’s fundraising activity, while Whitman has come under intense fire for hiring an undocumented worker while railing against illegal immigration.

Susan Estrich, the USC law professor who ran Michael Dukakis’ 1988 presidential bid, noted Brown has a five-point lead on Whitman but said he isn’t focusing on the critical issues.

“He would still be winning the race, but winning for a better reason,” Estrich said.

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